Fiscal Conditions Research Articles

The Determinants of Fiscal Health: An Exploration of Municipalities in Brazil

ABSTRACT The public administration literature has largely focused on local government fiscal health, mostly using data from the U.S. However, how well does this research hold up in other contexts? Using data from 5,524 municipalities from 2013 to 2021, we explore determinants of financial conditions, employing two financial indicators tailored to Brazil’s context: operational positioning and immediate liquidity. Our findings reveal that municipalities with experienced mayors and greater fiscal autonomy tend to have more favorable fiscal conditions. While local characteristics such as per capita income, population size, and density occasionally played a role, they were not consistently the most significant factor.

The What and Hows of Local Fiscal Condition in South Korea

ABSTRACT This study explores the local fiscal condition in South Korea, which is a fiscally centralized system. Upon reviewing the local fiscal management systems operated by the central government, we find that the central government monitors and evaluates local fiscal condition to exercise control over the local management practices rather than to achieve actual financial improvements. The study also conducts empirical analyses using panel data from all 243 local governments between 2012 and 2021. Results suggest the importance of local governments’ managerial capacity in offsetting fiscal constraints under a fiscally centralized system. The study contributes to broadening the generalizability of fiscal condition theories and deepening the context-specific understanding of local fiscal condition.

Incentivizing recycling in local governments: the moderating role of fiscal conditions in the adoption of Pay-As-You-Throw recycling programs

This article aims to extend the political market framework by exploring whether policy demand or supply is the key consideration for local governments’ policymaking and under what financial conditions local governments favor one over the other. We expect that local governments with good fiscal conditions are more likely to respond to public demand, but local governments with poor fiscal conditions pay more attention to supply influences. To test this idea, this study examines the moderating role of fiscal conditions within the political market framework regarding what factors account for adopting local governments’ Pay-As-You-Throw (PAYT) recycling programs in solid waste management (SWM). The results of the fixed-effect logistic model support that fiscal conditions play a moderating role in shifting organizational attention on the supply side based on cross-section data covering 1,840 local governments in the United States.

Turning a blind eye: How local government fiscal distress affects the entry of energy-intensive enterprises

This study explores the impact of local fiscal distress on energy-intensive entrepreneurial ventures. We theoretically establish a conceptual framework between government fiscal distress and energy-intensive entrepreneurial activity through the lens of environmental regulation. Using the newly available firm registration data, we employ the Poisson regression model and find that the falling fiscal condition of county governments triggered by an exogenous tax reform significantly leads to more entry of energy-intensive enterprises. We uncover that the increased entry of energy-intensive enterprises is primarily driven by relaxing environmental regulation rather than other policy changes. Delving into firm nature, we find that these energy-intensive entrants are usually large firms and privately owned firms. Further evidence suggests that industrial agglomeration, regional marketization levels, and legal environments negatively moderate the impact of fiscal distress on the entry of energy-intensive enterprises. This paper sheds light on the potential environmental consequences of governments' fiscal distress.

PPP infrastructure investments in Brazil: Establishing stylized facts

Public-private partnerships (PPPs) were established in Brazil at the beginning of this century, following a global trend of using these partnerships to stimulate investment in infrastructures, particularly in a framework of restrictive budgetary and fiscal conditions. Despite their growing importance and the expectation of an expanding role in the future, not much is known about the actual facts on the ground. The objective of this paper is to be a first step in the direction of filling this information gap by providing important stylized facts about the universe of PPPs in Brazil: the quantitative evolution of PPP adoptions; the characterization of the geographical distribution of PPPs by government level (federal, state, district, and municipal); the characterization of the PPP intervention areas, including the total value of contracts and the modalities of PPP concession (sponsored and administrative). This objective is rendered possible by the development of a new database that covers the entire process of PPP contracting from 2005 to 2022, including the opening of public consultation procedures, the publication of the official notice, and the signing of contracts, as well as multiple thematic, financial, jurisdictional, and regional indicators. In turn, we see the establishment of these stylized facts as a necessary first step in the direction of understanding the factors that may determine or condition their adoption. In general, having a clear picture of the universe of the PPPs in Brazil is fundamental as their use and their role are expected to significantly increase in the future as the country pursues a path of improved economic activity and well-being of the population.

Analysis of the Impact and Implications of the VAT Rate Increase in Indonesia

This study aims to find out how the impact felt by the community after the implementation of the VAT rate increase policy on individuals who act as end consumers, and business actors or MSMEs who act as distributors. The method used in the study is Systematic Literature Review (SLR) from various studies on the impact and implications of VAT rate increases in Indonesia. The results of the study show that VAT affects the price of goods and services in the market, increases production costs and selling prices, and worsens inflation. However, the increase in VAT rates can also increase government tax revenues, reduce the budget deficit, and stabilize the country's fiscal condition. In addition, the increase in VAT can affect consumer behavior and business investment, especially in the manufacturing, trade, and service industry sectors.

How State Takeovers of School Districts Affect Education Finance, 1990 to 2019

Abstract State takeovers of school districts—a form of political centralization that shifts decision-making power from locally elected leaders to the state—have increased over time, often with the purported goal of improving district financial condition. Takeover has affected millions of students since the first takeover in 1988 and has been more common in districts serving marginalized communities. We investigate whether 104 takeovers from 1990 to 2019 affect financial outcomes using event study methods. We find that takeovers increase annual school spending by roughly $2,000 per pupil after five years, leading to improvements in some aspects of financial condition (budgetary and long-run solvency), on average. New funds primarily come from state revenues and mostly cover districts' legacy costs (debt and employee benefits). These effects are larger when takeovers are motivated by academic and/or other, non-fiscal reasons. However, takeovers are experienced unequally, with Black students less likely to experience the takeover-induced increases to expenditures and improvements in fiscal condition. This suggests political centralization can promote fiscal health but with potentially concerning equity implications.

Does reform policy of municipal bonds raise firm risk? A quasi-natural experiment from China

Does reform policy of municipal bonds increase firm risk? We address this question by examining the effects of the ‘Local Issuance and Local Repayment’ (LILR) reform policy launched by the Chinese central government on firm stock return volatility between 2009 and 2019. We find that the LILR reform policy increases the volatility of firms' stock returns. Possible explanations for the effect of reform policy are that it exacerbates firms' financial constraints and reduces the effectiveness of fiscal policy. Consistently, we find that the aggravating effect of reform policy is more pronounced in regions characterized by worse financial environment, worse fiscal condition, firms in growth and decline stages and in downstream and service and support industries. We provide empirical evidence from a Chinese quasi-natural experiment to address the long-term economic development issues of local government debts.

Health disparity among older adults in urban China: The role of local fiscal conditions

This study explores the disparities in older adults' self-rated health within the urban landscape of China. Drawing on the 1% national population survey of China in 2015, it highlights how variations in city development contribute to geographical health disparities among older residents. In the era of the decentralized fiscal system, a crucial mechanism identified is the role of cities’ local fiscal revenue in connecting their socioeconomic development and the health status among older adults. Despite efforts by cities in lower socioeconomic positions to increase fiscal expenditure and address deficits through central transfer payments, they prove inadequate in effectively mitigating population health disparities. The prioritization of economic growth and neglect of public service provision responsibilities are fundamental causes within this fiscal framework. The findings underscore the urgent need for increased central transfer payments in public services to address the growing disparities in older adults' health.

Policy steps in the federal budget and health care to achieve sustainable fiscal conditions in the U.S.

Health care spending has grown significantly in the US, and is a major cause of rising federal deficits. Official projections find that low economic growth and aging of the population will lead to a modest continuation of this situation, but they miss that labor shortages have a particular impact on inefficient sectors, raising the cost of health care. We develop a unified macroeconomic model to address this shortcoming, with key variables—particularly in the health care sector and interest rates—endogenously determined. We find that the current fiscal trajectory of the US is unsustainable, with future deficits and debt well beyond both historical norms and official projections. Policy steps, focusing on reducing health care spending, increasing capital, and fiscal retrenchment, can lead to sustainable fiscal conditions and raise living standards that will otherwise fall.

Analyzing the impact of fiscal conditions on private health expenditures in OECD countries: a quantile ARDL investigation

Organization for Economic Co-operation and Development (OECD) countries have embraced the aim of universal health coverage, as established in Sustainable Development Goal (SDG) 3.8. This goal guarantees access to quality healthcare services without financial hardship or poverty. Additionally, it requires correct and adequate financing sources. A country with weak protection for its population tends to spend less on healthcare and experiences a high share of out-of-pocket payments (OOPs), increasing the likelihood of people falling into poverty. This study aims to understand the relationship and causal effects between macroeconomic and public fiscal conditions and private health expenditure in OECD countries between 1995 and 2019. We retrieved OECD data for 26 OECD countries for the period 1995–2019. Panel AutoRegressive Distributed Lag (PARDL) and panel quantile AutoRegressive Distributed Lag (PQARDL) models were estimated to examine the relationship between private health expenditures and macroeconomic and public fiscal variables. Our results reveal a positive influence of government debt and economic freedom on private health expenditures. They also show a negative influence of the government budget balance, government health expenditures, and economic growth on private health expenditures. These results collectively suggest that public fiscal conditions will likely impact private health expenditures. The findings of this study raise concerns about the equity and financial protection objectives of universal health coverage in OECD countries.

Assessment of Poland’s fiscal position in the European Union in the face of crisis conditions

Crisis conditions in the 21st century also reached the European Union countries, including Poland, and were reflected in the nominal and real economy. In particular, what suffered most was the fiscal condition of individual countries. To support the state of the economy, the economic authorities often took extraordinary, unconventional actions, which unfortunately resulted and still result in a deterioration of the state of public finances. It is therefore worth referring to this research and empirical problem from the perspective of the current and ongoing economic crisis.

Service Outsourcing and Government Fiscal Conditions: Do Market Competition, Bureaucrat Support, and Management Capacity Matter?

Scholars have long regarded government fiscal stress as a crucial factor driving public service outsourcing; however, further investigation is still needed to determine whether service outsourcing in turn helps governments improve fiscal conditions. Public choice theory suggests that outsourcing services can lead to efficiency improvement and cost savings. Nevertheless, transaction costs theory implies that the costs associated with service outsourcing may offset or even outweigh its potential benefits. Moreover, the extent of transaction costs depends on contextual factors such as market competition, bureaucrat support, and government management capacity. Empirically, we employ an instrumental variable estimation approach to examine the impact of service outsourcing on the budget balances and debt levels of U.S. municipalities. We find that service outsourcing improves government fiscal conditions, with contextual factors playing an important role in moderating this effect. Additionally, outsourcing services to different types of contractors has varying implications for government fiscal conditions.

Sustainable strategies for boosting profitability: Unveiling the connection between fiscal policy and natural resource efficiency

In this study, we delve into the vital relationship between fiscal policy and natural resource efficiency, aiming to uncover sustainable strategies that can enhance profitability. States are recommended to establish fiscal restrictions under three circumstances: high levels of internal institutional quality, significant rent from natural assets, and external pressure to apply these instructions. Resource-rich countries that depend on natural reserve rents are less likely to enact efficient fiscal restrictions, even after accounting for characteristics like democracies and domestic quality of institutions, according to an analysis of panel data covering 166 countries from 1985 to 2021. The negative effect of a wealth of natural resources on the possibility of enacting fiscal rules is compounded by the country's weak institutions. As a result of IMF fiscal constraints, more countries are likely to implement fiscal rules, which may help alleviate the resource curse. This paper also finds that fiscal conditions imposed by the IMF raise the probability of nations adopting fiscal regulations, suggesting that there are ways for countries to mitigate the effects of the resource curse. Furthermore, these results remain robust across different datasets, model parameters, and estimate methods, including the instrumental parameter method.

Economic Freedom and the Fiscal Condition of Cities in Tennessee

Economic Freedom and the Fiscal Condition of Cities in Tennessee

Fiscal conditions for multiparty elections in dictatorships

Multiparty elections can reduce the likelihood of conflict and help dictators secure their rule, but when does a dictator create electoral institutions? Existing research finds that one of the major reasons regimes introduce multiparty elections is to gain information about opposition demands. This article builds on that argument to explain that a regime’s finances determine whether or not it is able to benefit from creating electoral institutions. Dictators use the revenue of the regime to invest in different means of deterring opposition rebellion. A regime’s first priority is to build repressive capacity, after which it invests in public spending to buy the support of its winning coalition. Regimes only benefit from multiparty elections when they have sufficient revenue to fund repressive capacity but lack the finances to also buy regime security through massive public spending. Low-revenue regimes cannot benefit from elections and high-revenue regimes do not need elections to help secure their rule. I test the implications of the argument for regime spending and the creation of multiparty electoral institutions using a global sample of dictatorships between 1972 and 2014. The results of the hypothesis tests indicate that as revenue increases regimes decrease their shares of spending on repressive capacity but increase shares of spending on the public. The results also indicate the probability that a regime introduces elections rises as revenue increases from a low level, but the probability declines as revenue increases from a high level. The study builds upon the literature for how regime resources and state capacity influence authoritarian strategies of political survival. The findings for spending patterns are consistent with recent research on late modern regimes, and the results for the emergence of electoral institutions are consistent with research that finds dictators must have sufficient resources to survive holding elections.

Dynamics of Macroeconomy, Medicaid, and State Fiscal Conditions: A Role of Medicaid Expansion.

One of the main concerns of state governments about Medicaid expansion is the potential increase in state fiscal burden following the rise in enrollments. In previous literature, limited attention has been paid to the effect of macroeconomic changes, which are closely linked to Medicaid enrollments, in understanding the impact of Medicaid expansion on a state. To narrow the gap, this study establishes a synthetic model to represent the transmission channel from an unemployment shock to the Medicaid program and state expenditures. The panel vector autoregression (VAR) model is adopted for the empirical analysis using annual data from 2010 to 2019 for 50 US states and D.C. The unit root and Granger causality tests are conducted to check the model's appropriateness. The estimated results are analyzed by using impulse response functions. A sudden increase in the unemployment rate will raise the number of Medicaid enrollees and the state Medicaid expenditure, but the impact on the overall state budget is not clear. States that adopt Medicaid expansion will encounter surges in enrollment and increasing Medicaid expenditure during the economic recession, while the non-expansion states will only have moderate enrollment increases. However, an increased budgetary burden per new enrollees will not be significant at its level. Medicaid expansion will allow more people to benefit from the public health insurance program during an economic recession while the impact on states' fiscal burden will be moderate.

Politics of fiscal discipline: counter-conducting the World Bank's public financial management reforms

PurposeThe World Bank-sponsored public financial management reforms attempt to instil fiscal discipline through techno-managerial packages. Taking Ghana's integrated financial management information system (IFMIS) as a case, this paper explores how and why local actors engaged in counter-conduct against these reforms.Design/methodology/approachInterviews, observations and documentary analyses on the operationalisation of IFMIS constitute this paper's empirical basis. Theoretically, the paper draws on Foucauldian notions of governmentality and counter-conduct.FindingsEmpirics demonstrate how and why politicians and bureaucrats enacted ways of escaping, evading and subverting IFMIS's disciplinary regime. Politicians found the new accounting regime too constraining to their electoral and patronage politics and, therefore, enacted counter-conduct around the notion of political exigencies, creating expansionary fiscal conditions which the World Bank tried to mitigate through IFMIS. Perceiving the new regime as subverting their bureaucratic identity and influence, bureaucrats counter-conducted reforms through questioning, critiquing and rhetorical venting. Notably, the patronage politics of appropriating wealth and power underpins both these political and bureaucratic counter-conducts.Originality/valueThis study contributes to the critical accounting understanding of global public financial management reform failures by offering new empirical and theoretical insights as to how and why politicians and bureaucrats who are supposed to own and implement them nullify the global governmentality intentions of fiscal disciplining through subdued forms of resistance.

Revenue/cost production sharing contract (psc) fiscal regime on marginal gas fields in Malaysia: Case study

Despite the increasing global demand for natural gas, there are many marginal oil and gas fields that lie idle and are not developed mainly due to the uneconomic feasibility of the project. One of the main factors hindering the monetization of these small fields is the unfavourable fiscal conditions. This is the main reason why many potential marginal fields that do not meet the economic criteria required for commercial development are stranded. Thus, this paper aims at assessing the existing Revenue/Cost (R/C) Production Sharing Contract (PSC) fiscal regime on marginal gas fields in Malaysia via sensitivity and scenario analysis studies. It is found that reduction in cost of capital, tax rate or other PSC payments parameters helps to improve the NPV however the analysis shows the R/C tranches consists of cost recovery limit, excess cost recovery and profit-sharing percentage are the significant factors driving the cash flow.

Fiscal Conditionality in EU Law

This paper analyses the evolution, objectives, and instruments of fiscal conditionality legislation of the European Union. The author provides a detailed analysis of the relevant elements of the existing legislation, as well as the recent judgments of the Court of Justice of the European Union on the subject. The paper demonstrates that the Financial Conditionality Regulation is not an instrument for protecting the rule of law in general, but its general purpose is to protect the EU budget by enforcing the fundamental requirements deriving from the rule of law.